Monday, September 22, 2008

William Kristol and Paul Krugman say Comrade Paulson's $700 billion Great Leap Forward won't work. Kristol doesn't have an argument but Krugman says buying in toxic paper is beside the point, they money should be used to recapitalise banks. This would involve further nationalisation as the government would take equity in return for capital. Truly we are in a new world. Meanwhile, Morgan Stanley and Goldman Sucks have admitted that they were wrong about everything. I expect there are a few 'investment' 'bankers' hunkered down like Hitler in his bunker, blaming it all on the cowardice and stupidity of of the American people, but, basically, the game is up. The effect of the 'innovations' in the financial system for the past 25 years has been entirely negative. This raises two questions: what, exactly, does 'free' mean in 'free markets'? Markets are a product of state action; all neo-liberal denials of this truth are as the babblings of the lunatics in Times Square. Secondly, will the bonus culture be allowed to continue? This encouraged deals that were risky for banks and the rest of us but not for the trader, a glaring absurdity. Bonuses have encouraged a generation of smart young people to do destructive things. Maybe now they can get round to reading books and stuff.

20 comments:

As Chris over at StumblingndMumbling has pointed out, it's a crisis of ownership. Investment bankers have behaved like 1970's British Leyland workers and stripped their shareholders bare. When the risk takers are divorced from the owners, they will take more risks.

It would also help if bankers got back to boring banking; investors invested; and advisers independently advised. Modern investment banks had, in the last twenty years, abandoned the last and combined the first two to, we now see, disastrous effect.

Krugman's idea is not exactly revolutionary. The Reconstruction Finance Corporation exchanged capital for equity in about 6,800 banks in the 1930's. FWIW, the lack of a market for mortgages caused the RFC to create Fannie Mae.

In Edinburgh's George Street today the (admittedly minor players) suits were not strutting round with the usual "outta my way I'm important and in a hurry" expression on their faces. They were looking distinctly worried. They have possibly heard that the revolution arrives here shortly.No doubt the lord god Gordon "Dennis Healey" Brown will claim "it was me wot dunnit"Fool that I am for asking, but I wonder why Germnay is having none of these problems.

I'm glad someone's mentioned Stumbling and Mumbling. It's been one of the best and most reliable sources of info about recent events, partly because it explains things simply and clearly so that even I can understand them, and partly because it offers something in very short supply at the moment - hope. Hope, in the sense that a fairer and better way of organizing ourselves may emerge from all this. All the other side has offered are smoking ruins, war stories and pitiful incomprehension (Bush and co). As the last century taught us, if enough people abandon any hope that society can sort itself out, the next things to go are democratic freedoms and the rule of law.

Your comments, Bryan, remind me of Gore Vidal's observation of Reganomics: "The US government prefers that public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich."

"does 'free' mean in 'free markets'?"Free to own, free to act on that ownership, in other worlds property rights.

For as long as we have a fiat currency system we will have these issues, we have a political currency, not a economic one, if the politics are good, the economics will be good and we will sail into the future happy, if its bad we all pay, unfortunatly in a democratic system we get both, but the benefits of that system in terms of human rights, property rights, rule of law, open society, ect. far out way going down the road of the Asian model

Recessions usually account for a 10% blowout, this 700 zillion one is about 5%, if it works, which I think it has about 80% chance of, the question then is how much is the recession and correction going to cost, if it all adds up to 10% of gdp, then we have got away with it.

I think all in all, we can put this one down as a triumph of conservatism, so I don't buy the Comrade Paulson line. Conservatives are the guardians of the status quo, saving the financial system seems pretty much to me keeping the status quo.

Just to add,

1, The second wave of this quake will be on continental Europe.2, A recession in Europe will be worse than the US, and will really test the Euro.3, Could not find any writings of substance by Krugman warning of this crisis other than the usual leftist impending doom for everyone kind of stuff.4, if you need to get some cash, then its going to be case of dusting your suit out and making an appointment with your bank, the bank manager is going to make a come back.

Just to add, It might come as a shock to Krugman, but if you have a patient that is bleeding badly you don't try and stick more blood into them, you first put pressure on the point it is bleeding and then use clotting agents, More blood or more cash in this case, is much further down the line, but if the market recovers banks should be able to recapitalize themselves.

Since it was conservatives that conceived and impletented Neo-liberalism, and conservatives who championed it for the next twenty years, puts the blame firmly at their door. Gordon Brown and the rest get shot afterwards.Maybe if they'd stuck to sceptical conservatism we wouldn't be in this mess. You can barely find a handful of tories who aren't fans of the free market.

Sorry you are still getting things mixed up, conservatism manifests itself in different forms, let me give you an example.

Putin under the soviet system supported the status quo, Putin under the new state capitalist system model supports the status quo. He is in the Russian context a conservative.

As with Neo "liberalism" start with the wiki page, you will see it started actually on the left of american politics.

You are nearly right at the end "skeptical conservatism"

What is behind the credit quake is dodgy mathematics, and the people who came up with some of the "toxic investments" who believed this mathematics was so good it was a science. these people got noble prizes and tended to come out of Americas top universities.

No matter what system you have, be it capitalist, marxist, nationalist, if you have psudo science underpinning it, it will fail.

We tend to have mixed systems in the west, because we are democracies which tend to produce "predominately" capitalist free market centered systems, but never pure systems.

I agree with you that there are different interpretations of conservatism. My point is the majority of people who call themselves conservatives today are pro free markets and talked as if regulation would lead to communism. It can be argued Neo-liberalsim is un-conservative but it doesn't change the fact it was implemented and thunderously championed by conservatives. The blame needs to go at their door so they wake up to this faulty ideology.

I agree with you that there are different interpretations of conservatism. My point is, the majority of people who call themselves conservatives today are pro free markets, and talked as if regulation would lead to communism. It can be argued Neo-liberalsim is un-conservative but it doesn't change the fact it was implemented and thunderously championed by conservatives. The blame needs to go at their door, so they wake up to this faulty ideology.

I agree with you that there are different interpretations of conservatism. My point is, the majority of people who call themselves conservatives today are pro free markets, and talked as if regulation would lead to communism.It can be argued Neo-liberalsim is un-conservative but it doesn't change the fact it was implemented and thunderously championed by conservatives. The blame needs to go at their door, so they wake up to this faulty ideology.

>>what, exactly, does 'free' mean in 'free markets'? Markets are a product of state action;

What nonsense, Bryan. Markets have existed ever since people have been prepared to exchange with one another. Since the only other option available to us to get what we want is extortion, exchange it has to be. States do not create markets, which existed long before the first State, and continue to function even when the State is bombed flat: all the State can do is either facilitate their operation by protecting the right to hold and freely exchange property, or (more likely) screw them up in pursuit of their political Millennium.

A blog about, among other things, imaginary ideas - What ifs? and Imagine thats. What if photographs looked nothing like what we see with our eyes? Imagine that the Berlin Wall had never come down. What if we were the punchline of an interminable joke? All contributions welcome.